Feb. 6 (Bloomberg) -- Elan Corp. fell the most in almost
seven months in New York trading on skepticism the Irish
drugmaker will profitably reinvest the proceeds from selling the
Tysabri multiple-sclerosis drug to Biogen Idec Inc.

Elan’s American depositary receipts declined 10 percent to
close at $9.40 in New York, their biggest drop since July 24. In
Dublin trading, the company’s shares rose as much as 11 percent
before turning lower as Elan executives briefed analysts on a
conference call.

Chief Executive Officer Kelly Martin plans to use much of
the $3.25 billion in cash from the deal, which amounts to more
than half of Elan’s market value, to invest in pharmaceutical
assets. Investors are skeptical Elan will create more value
through acquisitions than it would have by share buybacks or
dividends, said Richard Parkes of Deutsche Bank AG in London.

“The selling means that investors are uncertain what the
company will do going forward and what the return to
shareholders will be,” Olav Zilian, an analyst with Helvea SA
in Geneva, said in an interview. “In the end, the question is
where the cash will be spent.”

The deal gives Biogen all rights to Tysabri, Elan said in a
statement today. The companies had been splitting profit equally
on the medicine, which generated $1.6 billion in sales in 2012.
The deal ends speculation that Biogen would buy Elan and
transforms the Irish company into an investment vehicle in
search of health-care assets.

Asset Portfolio

“This move gives us a chance to reinvest a fair amount of
capital across a whole host of assets and helps us redefine and
reposition the whole company,” Martin said in an interview. The
company seeks a “balanced portfolio of assets” that would
include products already on the market and experimental
medicines, he said.

Elan isn’t in talks to sell the company and has been
negotiating for months to acquire assets, Martin, 53, said in
the interview. The first investment could happen shortly after
the deal closes, he said.

“Elan has no track record of running a fully integrated
specialty pharma company, so a lot of uncertainty remains,”
Guillaume van Renterghem, an analyst at UBS AG in London, said
in a telephone interview. “Investors would probably appreciate
getting their cash back instead of seeing the company diversify
through the acquisition of assets.” He recommends buying Elan
shares.

Trial Failure

Martin, a former Merrill Lynch & Co. banker who joined Elan
in 2003, planned to leave the company by May 1 last year. The
board asked him to stay until trial results were in from an
experimental treatment for Alzheimer’s disease, bapineuzumab.
Once the drug failed, efforts to find a new CEO ended.

After the failure, Elan said it wouldn’t discourage suitors
that approached it about an acquisition, and speculation mounted
that Biogen would bid for the company.

“My guess is you’re now seeing the last remaining hope
that Biogen might have bought the entire company come out of the
stock,” said Corey Davis, an analyst at Jefferies & Co. in New
York. He has a buy rating on Elan’s stock.

Van Renterghem, the UBS analyst, told Martin on the
conference call that Elan “looks to me like a publicly traded
private equity fund” and asked why investors would be happy
with Martin investing their cash rather than doing it
themselves. He also asked how many Elan directors wanted to
return all the cash to shareholders.

“There was complete alignment as far as the direction of
the company,” Martin said of the board. “We’re not going to be
a private equity company, so to speak. We have some of the
characteristics to your point, your valid point that we have
capital to invest.”

Outmaneuvering Competitors

Analysts also questioned how Elan could compete with other
drug companies that also are seeking acquisitions and unearth
the rare assets that are attractive. “What gives you the
confidence that you can outmaneuver competitors in a competitive
environment for end licensing and acquisitions for late-stage
products,” Parkes of Deutsche Bank said on the call.

Elan has an advantage over other potential acquirers
because it has tax losses that it can use to offset profits, and
also benefits from low Irish corporate taxes, Elan executives
said. That makes it easier to find transactions that will pay
off, they said. Elan is essentially paying no tax on the $3.25
billion from Biogen, Chief Financial Officer Nigel Clerkin said.

Elan didn’t consider winding down the company and returning
the proceeds to shareholders, Martin told reporters today. He
said he plans to stay involved as the Tysabri deal closes and as
the company reviews possible acquisitions and licensing
opportunities.

Elan plans to return a portion of the capital to
shareholders though the amount and timing would depend on
investment opportunities, he said.

“Investors need to trust that the cash will be invested in
lower-risk assets,” said Jonathan Birt, a spokesman for Elan at
FTI Consulting in London, when asked about the stock decline.
“This is a good deal: Analysts see the total value at $6 to $8
billion.”